Saudi Arabia has resumed its role as swing oil producer to calm global
TORONTO, Feb. 28 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends for 32 of Canada's major exports, advanced by 2.7
per cent month over month (m/m) in January - the seventh consecutive
monthly gain. The All Items Index currently stands 47.4 per cent above
the cyclical low in April 2009 and is at the highest level since
"Overall commodity prices will likely edge higher again in February,
though momentum has shifted late-month from strength in base metals to
oil and precious metals, given growing political unrest in Libya,
Algeria and parts of the Middle East," said Patricia Mohr,
Vice-President, Economics and Commodity Market Specialist at
The Agricultural Index led the way in January, surging 5.5 per cent
m/m. Gains were widespread, with strength in grains and oilseeds,
livestock (hogs and cattle) and fish. Spot canola prices (FOB
Vancouver) - the highest value crop in Western Canada - posted the
strongest year-over-year gain (up 55.1 per cent) alongside robust
international demand for vegetable oils (especially in China and
"The surge in world agricultural prices over the past year not only
reflects adverse weather conditions, for example, drought in the FSU-12
wheat-growing area last spring and La Nina-related flooding in
Queensland, Australia - usually the world's third-biggest sugar
exporter - but also the growing competition for arable land between
crops grown for food and crops grown for fuel," noted Ms. Mohr.
According to the report, it may take several crop years before currently
tight U.S. corn and soybean supplies are significantly rebuilt, even
with massive expected U.S. planting of corn this spring and normal
weather conditions. Wheat markets are expected to tighten further in
2011-12, given prospects for a poor U.S. winter wheat crop, some
shifting of acres from wheat to corn and soybeans in the United States
(partly for biofuels) and recently dry growing conditions in Russia.
Cattle prices could climb to record levels alongside herd reduction.
As prices rise through the supply chain, food prices at the grocery
store will likely climb higher in Canada and the United States.
Oil & Gas
The Oil & Gas Sub-Index posted a surprising decline in January (-0.5 per
cent m/m) partly due to apportionment of Canadian crude on a key export
pipeline due to repairs, with supplies building up at Superior,
Wisconsin. In contrast, WTI oil prices - light, sweet crude traded on
the NYMEX - were largely flat in January at US$89.58 per barrel (up
from US$78.38 a year ago).
However, Canadian prices will rally back in February/March, given the
recent spike in WTI and international oil prices. WTI oil climbed to
US$97.88 on February 25 (up more than US$11 last week). Curtailed
exports from Libya, together with concern that unrest could intensify
in Algeria (another significant OPEC producer) and possibly spread to
other Persian Gulf countries have propelled prices. Volatility has
been extreme, with WTI rising over US$103 and Brent approaching US$120
in intraday trading last week.
To calm global oil markets, Saudi Arabia has resumed its role as swing
supplier, lifting output over 9 mb/d to offset curtailed Libyan
supplies. "The world is much better prepared to handle an oil supply
crisis today than in mid-2008, when WTI oil prices skyrocketed to a
record US$147.90 alongside strong global demand and dwindling OPEC
spare capacity," stated Ms. Mohr. "Saudi Arabia has made significant investments to boost its capability
in recent years and has at least 3.5 mb/d of spare capacity, which can
be brought into production within 30 days. It is interesting to note,
however, that Saudi Arabia accounts for the vast bulk of OPEC spare
capability, at least 71 per cent excluding Iraq. The stability of Saudi
Arabian oil supply is therefore of critical importance." The WTI oil
price forecast has been revised up slightly to US$97 for 2011 and
US$100 for 2012 to reflect a heightened global risk premium in world
Metals & Minerals
The Metal & Mineral Index gained further ground in January, rising by 3.9 per cent m/m.
Broad-based strength in base metals, a jump in premium-grade hard
coking coal and stronger uranium prices more than offset a temporary
pullback in precious metals (gold and silver).
"The outlook for potash markets, demand and prices, over the coming year
is extremely positive, with high crop prices incenting farmers to apply
more fertilizer," said Ms. Mohr. "World potash shipments in 2011 could
climb to 55-60 million tonnes amid one of the best fertilizer
application environments ever seen."
Western Canadian producers can also look forward to a jump in contract
prices for premium-grade hard coking coal from US$225 per tonne in JFY
2010:Q4 (January to March) to a new record high of US$330 in
JFY2011:Q1. Flooding in Queensland has curtailed shipments, creating
very tight supplies in Asian markets.
Forest Products Price Index
The Forest Products Price Index also posted a 2.5 per cent m/m gain in
January. Stronger lumber and OSB prices and an increase in contract
prices for SC-A paper (used in magazines, catalogues and direct mail)
led the way. NBSK pulp prices also held up well.
"While remaining volatile, lumber prices continue to make a comeback,
despite weak U.S. housing starts, a mere 596,000 units annualized in
January," concluded Ms. Mohr. "Stepped-up Chinese imports of Canadian
lumber, mostly from B.C., are leading the market revival."
Scotia Economics provides clients with in-depth research into the
factors shaping the outlook for Canada and the global economy,
including macroeconomic developments, currency and capital market
trends, commodity and industry performance, as well as monetary, fiscal
and public policy issues.
SOURCE Scotiabank - Economic Reports
For further information:
Patricia Mohr, Scotia Economics, (416) 866-4210, firstname.lastname@example.org; or Patty Stathokostas, Scotiabank Media Communications, (416) 866-3625 or email@example.com